You make a substantial investment of time and money to buy a business. It is important to ensure that a legal practitioner, accountant and if possible, a financial adviser has had an opportunity to advise you relating to the purchase of your proposed business.
Please make sure you have all the information and documentation as listed below:
The seller must provide you with:
- The contract of sale
- A copy of the lease
- A vendor’s statement or Section 52 statement if the business costs less than $450,000 (The vendor statement has information about the business finances. Please do ‘financial due diligence’ to make sure you’re not overpaying. Please get help from an accountant so they can make an objective appraisal of the business.)
Please be wary of a seller who doesn’t disclose important information, such as why they’re selling, the lease, licenses, permits and staff.
Please be wary of sellers who:
- Are subject to pending litigation.
- Have a record of customer complaints.
- Talk up the cash trading.
- Drop the sale price of their products or services to bump up gross sales before selling the business.
Please watch out for sellers who:
- Won’t allow a trial period.
- Won’t present you to suppliers, the property-owner or estate agent.
- Make the deal seem too good to be true.
- Are keen to close the deal quickly.
- Give in too easily to an offer.
Please work out a fee plan that allows you to pay in phases. You can maintain some part of the buying price for a specified period and, if required, place it in a trust with an attorney or an estate agent.
If the seller is the owner of the business premises and is transferring the title to you, search Landata to ensure they have free and clear ownership of the premises.
If the seller is assigning the lease to you, then prepare the proposed assignment of lease.
Please be wary of:
- Landlords who only give short leases
- Residents who offer the small business for sale at lowered price, but then offer you the same contract at a premium.
The few of the different aspects to buying a business:
- Review of the Contract and Section 52 statement
- Lease transfers and negotiation
- Business name registration
- Trademarks and other intellectual property.
- Restraint of trade
- Trust structures
- Succession planning
Please conduct due diligence for items below:
- Licences and permits – Does the business have all the correct licenses and permits required to run the business? Are they up to date?
- Contracts and leases – Will the landlord agree to the transfer of the lease into your name? Will you have to negotiate a new lease?
- Agreements – Are there any outstanding agreements between the seller and suppliers?
- Status of plant, equipment and fixtures – What kind of equipment and machinery does the business own? Are they in good working order and licenced?
- Assets – What assets does the business have? Does it have any intellectual property?
- Inventory – Is the inventory on-hand being included in the purchase? Is the inventory currently managed, stored and distributed and if so, how? What is the current state of the inventory?
- Liabilities – Does the business have any outstanding debts? Are there any refunds and warranties existing for the business? Are there debts outstanding on any assets that are registered on the Personal Property Securities Register?
- Financial records
- Business operations
- Legal documents